Standing Committee A

[Mr. Edward O’Harain the Chair]
(Except clauses 13 to 15, 26, 61, 91 and 106, schedule 14, and new clauses relating to the effect of provisions of the Bill on section 18 of the Inheritance Tax Act 1984)

Clause 56

Trade profits

Paul Goodman: I beg to move amendment No. 92, in page 43, line 20 [Vol I], leave out ‘shall' and insert
‘may at the election of the charity'.

Edward O'Hara: With this it will be convenient to discuss amendment No. 93, in page 43, line 26 [Vol I], leave out ‘shall' and insert
‘may at the election of the charity'.

Paul Goodman: It is a pleasure to see you in the Chair this morning, Mr. O’Hara. When we considered clause 54, the Paymaster General was keen to say that she would be happy to examine any examples of difficulties caused by these clauses to charities or institutions. I have been given such an example, upon which amendment No. 92 hangs. I shall put it to the Paymaster General to hear her response.
The clause as drafted requires the primary purpose and non-primary purpose of a charity to be divided into two separate traits. One might reasonably infer from that division that the expenditure apportioned to the non-primary purpose would be non-charitable expenditure. However, the argument has been put to me that such expenditure might be for the charity’s benefit—not simply for tax avoidance—without being exclusively for the charity’s purposes.
I come to the example. Let us suppose that a university college seeks to mitigate losses on its primary purpose trade—providing services to students—by undertaking catering and conferencing. Unless the amendment is accepted, colleges in which catering and conferencing are small-scale—that is, colleges that do not trade through a wholly-owned subsidiary—and many smaller and less financially sophisticated charities might find themselves at risk of challenge by a tax inspector. I should be interested to hear the Paymaster General’s response to the amendment.

Dawn Primarolo: Good morning, Mr. O’Hara. The amendments would allow a charity to opt for the rules that it wants to operate within. It was interesting that the hon. Gentleman picked a university and mentioned the line between being a business and having a charitable educational objective, because that area of tax law is quite complex.
Although I appreciate the hon. Gentleman’s example, I do not know whether it is a real or theoretical one. As he knows, the boundaries between charitable and business objectives—particularly in universities—and the issue of which set of rules therefore applies are quite an interesting challenge already. I can give the hon. Gentleman a straight answer on the Government’s view. Allowing businesses to opt, so that a charity could decide whether it is charitable or partly charitable, would mean that a small number of cases could be kept in. I am still not convinced. I think that he needs to find another example that does not involve universities, because that is a complex area of tax for lots of reasons.

Paul Goodman: Will the right hon. Lady give way?

Dawn Primarolo: Just a minute. I will finish the first point and then the hon. Gentleman can come back. The amendment would create a hugely complex set of rules about when charities may or may not opt in or out. It would do so for all charities and so would cause a problem for all of them. That is what I seek to avoid. In earlier amendments the hon. Gentleman probed by suggesting that it would be difficult if there were extra record keeping, yet here he proposes that all charities should face that. Therefore I am not attracted to the amendments.
Neither amendment fits very well with charity law and the definition that it uses to permit charities to conduct limited non-primary purpose changes. Not only is the hon. Gentleman adding more complexity in amendment No. 92, but amendment No. 93 appears to be disadvantageous to charities. While I appreciate his point about universities and the complex relationship between their business and charitable status, I am sure that they are not conducting the type of misuse of charities at which the clause is targeted. Therefore I am still of the view that the rules are entirely proportionate. I ask the hon. Gentleman to withdraw his amendment on that basis.

Paul Goodman: We will have to come back to this and I shall explain why. I understand why the Paymaster General does not like the amendment. She understands that it is essentially a probing amendment in relation to the example that I gave. She said that this was a complex area and that I would have to find another example. But it was precisely to establish what the clause will mean in relation to complex areas such as universities that I tabled the amendment.
I note that the Paymaster General did not address my example directly and say whether a university in that situation would find itself unexpectedly open to tax. She asked whether it was a real life example: it was given to me by a university that was worried that carrying out some catering and conference trading as a secondary objective would leave it open to tax. The Paymaster General has not really addressed that point. I shall not press the amendment to a vote because it was a probing amendment and a very blunt instrument, but I give her notice that we need to return to this matter in the light of what she has said and, more significantly, what she has not said. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 56 ordered to stand part of the Bill.

Clause 57

Gift aid relief for companies wholly owned by one or more charities

Dawn Primarolo: I beg to move amendment No. 71, in page 43 [Vol I], leave out line 36.

Edward O'Hara: With this it will be convenient to discuss Government amendment No. 72.

Dawn Primarolo: May I place on the record my thanks to the Law Society? Members of the Committee will have noticed in the briefing on the Bill that it has suggested that the clause would have some unintended effects. It would prevent a company from benefiting from gift aid where a charity owned shares in it. That is not the intention and I am happy to move these amendments to clarify that point. I hope that the Committee will therefore accept them.

David Gauke: I shall make two brief points. I am grateful to the Paymaster General for her comments on the Law Society. In the Committee of the whole House on another topic she was a little dismissive of law firms and professional advisers and questioned whether such advisers would know more than Treasury officials. In this case, it has emerged that they do.
I should declare an interest: the Law Society’s recommendations and comments were produced by the law firm Travis Smith. The lawyer who noticed the error in the drafting of the Bill was one Mrs. Rachel Gauke, who is my wife. I wish to place on the record the fact that during the Committee stage, one member of the Gauke family has managed to persuade the Government to change the Bill.

Dawn Primarolo: On that point, perhaps there is a lesson for the Opposition in how to approach debates and be constructive.

Amendment agreed to.

Clause 57, as amended, ordered to stand part ofthe Bill.

Clause 58

Extension of restrictions on gift aid payments by close companies

Paul Goodman: I beg to move amendment No. 95, in page 44, line 11 [Vol I], at end insert—
‘(3A) After subsection (3E) insert—
“(3F) Reliefs under this section shall be as follows—
(a) for donations not exceeding £100, 25 per cent. of the gift;
(b) for donations exceedings £100 but not exceeding £1000, £25; and
(c) for donations exceeding £1000, 2.5 per cent. of the gift up to a maximum of £2500.”.'.
I am sorry that my attention has been distracted from the amendment for a moment by the Paymaster General’s remark to my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) about the lesson that the Opposition should learn. I am still mulling over what that lesson should be, since we cannot all be married to Mrs. Gauke.

Dawn Primarolo: The hon. Gentleman could, but it would be illegal. That is the point of some of the amendments. [Interruption.]

Paul Goodman: I shall pass over that interjection, in case it finds its way into Hansard, which I fear it has. I do not know whether the Paymaster General was suggesting that the amendment would be illegal, but I can understand her impatience as I am about to tax her again with one of the examples that I have a way of raising. I hope that she will address it more directly than she did the previous example.
The clause will extend restrictions on gift aid payments by close companies to non-close companies. The argument has been put to me that it is likely to hurt charities that run substantial corporate benefactor schemes and that the maximum benefit of £250 is minimal and will discourage companies from entering into such schemes. An example was given to me by, needless to say, the Charities’ Tax Reform Group. Let us suppose that the National Trust were trying to raise £500,000 to repair a property and a corporate benefactor agreed to donate £250,000. The National Trust might begin to raise the rest by holding a fundraising dinner, selling tickets at £100 a head. The corporate benefactor might be given a free table in recognition of its generosity and to encourage other substantial contributions. If the benefit to the benefactor exceeded £250, the charity would lose gift aid on the whole £250,000 donation. The argument put to me was that if the Government are unwilling to delete clause 58, at the very least the upper limit should be raised from £250 to £2,500 to allow charities to devise effective corporate benefactor schemes and to encourage companies to be generous in entering them.

Dawn Primarolo: Company gift aid is a tax relief specifically designed for gifts to charities, not for payments that convey potential, substantial benefits on the donor company and those running it. In the Government’s view, the existing benefit limits are sufficient for charities to express their gratitude for a donation. We are talking about the benefits conveyed to the donor company by the charity when it says thank you for a donation. I say to the hon. Gentleman that there is no evidence to suggest that ensuring that donations to charities benefit principally the charity and not the giver—that is precisely what the clauses before us will do—will harm corporate giving.
A balance needs to be struck to ensure that companies do not benefit if they make a payment to charity with the aim of benefiting principally themselves and not the charity. The limit is there to prevent the glorious events that are designed to benefit those attending, but have little charitable benefit. That goes to the heart of the purpose of gift aid. I hope therefore that, given the narrow focus of the limit, the hon. Gentleman will accept that it is appropriate.
I remind the Committee that this series of clauses will deal with the misuse of charitable status by those who would put pressure on charities, or use them in order to benefit themselves, but not the charity. I want to reinforce that point. I hope that the hon. Gentleman will accept that explanation of why amendment No. 95 is unattractive and why I do not want the Committee to pursue it.

Paul Goodman: In short, the Paymaster General argued that the Treasury accepts the principle of a limit because charities might benefit from the relief given to the donor, such as in the example that I gave. However, given that a higher limit might actually benefit the charities, she did not justify why the level should be £250 rather £2,500. I was not satisfied with her explanation so I am inclined to press the amendment to a vote.

Question put, That the amendment be made:—

The Committee divided: Ayes 8, Noes 20.

Question accordingly negatived.

Clause 58 ordered to stand part of the Bill.

Clause 59

Cars with a co2 emissions figure

Question proposed, That the clause stand part of the Bill.

Rob Marris: The Government introduced the regime to change the way in which company cars are taxed several years ago. I think that I am right in saying that the majority of new cars bought in the United Kingdom are still company cars. The Government have had huge success with the regime. It has really changed the way in which company cars are bought, and the CO2 emissions of the company car fleet have been falling year on year in contrast to the CO2 emissions of private average cars, which have been increasing in the past couple of years.
My hon. Friend the Financial Secretary to the Treasury would probably term what I am about to say as an early bid for next year. I welcome the proposals under clause 59 at the lower end of the scale so that, when the 3 per cent. diesel supplement is dropped, some cars will drop to a 10 per cent. valuation for company car tax purposes. However, having had such success with changing buying plans for company cars in recent years, the Government have missed a major opportunity by not greatly increasing the figure at the upper end of the scale. I urge my hon. Friend to take such action next year.

Helen Goodman: The hon. Gentleman was certainly right about the lower end of the scale. Will the Financial Secretary comment on the remarks of Stewart Whyte, the director of the Association of Car Fleet Operators, about the clause? He said:
“Generally, it is a broadly neutral budget for the fleet industry with no major changes. However, the further tightening of company car tax in 2008-09 is a minor disappointment. It is clear that vehicle manufacturers are having some difficulty in driving through the technological changes that will see a significant rise in the number of very low CO2-emitting cars on sale.”
We certainly explored that issue in the debate on vehicle excise duty. He went on:
“We hope that all parties will work together to ensure that the typical car becomes much more fuel- and CO2-efficient—and therefore tax-efficient—so that the impact on drivers of the tax change is neutral. We cannot have a company car tax system which takes no account of the technical realities of the vehicles available and, as a result, penalises company car drivers through no fault of their own.”

John Healey: Clause 59 is a further step in the reforms that we put in place in 2002 to base the company car tax system on carbon dioxide emissions as a contribution to meeting the challenge of climate change. My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) is right to say that it has been a success. Our first stage evaluation demonstrated that the average emissions of company cars in 2004 were some 15 g per kilometre lower than they would have been had we not put the reforms in place. On his point about top rates, he is nothing if not consistent. He made the same point in relation to top rates of vehicle excise duty in earlier discussions on the Bill. He is right that I will not accept the argument at this stage in the debate on this clause, but I will take it as an early Budget representation for 2007.
We are making two changes to reinforce the environmental effect of the company car tax regime. First, the clause reduces the level of carbon dioxide emission qualifying for the lower threshold by 5 g per kilometre to 135 g per kilometre from 6 April 2008. That will provide a continuing incentive for company car drivers and their employers to choose more fuel-efficient cars. It will also encourage manufacturers to produce cars with lower carbon dioxide emissions.
The hon. Member for Wycombe (Mr. Goodman), is right to quote Stewart Whyte, and Mr. Whyte was right to say that the measure is broadly neutral for the industry. It is also neutral for the Exchequer. We do not anticipate an impact on revenues from the company car tax regime when the changes come in in 2008-09. If the hon. Member for Wycombe has discussed it with him, Mr. Whyte will also have pointed out that the industry was expecting the Government to move in this direction. We have been discussing it for some time, and did so again in the run-up to the Budget. The point about setting the rates three years in advance is that that is not just advantageous for companies that make cars available to their employees for private use; it is also a useful long-term signal for car designers and manufacturers about the policy direction of the Government.
The clause’s second incentive for company car drivers and their employers to choose more fuel-efficient vehicles is the introduction of a new 10 per cent. rate for company cars with carbon dioxide emissions of 120 g per kilometre or below. Setting the levels now for 2008-09 gives drivers a degree of certainty about how much their company cars will cost them for the next three years. Because company cars are typically held for three or four years, setting the threshold for that period in this Finance Bill enables businesses to plan ahead sensibly for their car fleets and company car drivers to calculate the full cost of company cars that will be reviewed in the next three years. On that basis, I hope that the Committee will accept the clause.

Question put and agreed to.

Clause 59 ordered to stand part of the Bill.

Clause 60

Mobile telephones

Question proposed, That the clause stand part ofthe Bill.

Mark Francois: May I, too, welcome you to the Chair, Mr. O’Hara? The most controversial part of chapter 5 of the Bill, which deals with personal taxation, is undoubtedly clause 61, which paves the way for the abolition of the popular home computing initiative, a decision that is still very much to be regretted, but that we dealt with in some detail in the Committee of the whole House. Clause 60 is an associated though less immediately controversial issue. Essentially, it seeks to limit to one phone any tax reallocation of mobile phone use by an employer to an employee. It was covered by the same regulatory impact assessment as clause 61, to which I shall refer shortly.
There are two areas in which it would be helpful to have clarification from the Paymaster General on the intended operation of the clause.
To begin with, there appears to be a residual ambiguity as to the permitted degree of personal use—if any—of the one mobile phone to which the clause refers, and on the tax implications, because there are differences between what is said in the Bill and the explanatory notes on the one hand and in the subsequent regulatory impact assessment on the other. 
On clause 61, the Government now say that people who are provided by their employer with a computer at home for business purposes will not be taxed on that computer as a benefit in kind, provided that any personal use of it is not significant. After debate, the Paymaster General offered to consult employers to define the term “not significant,” and I understand that that work is ongoing. However, I should like to know the parallel position under clause 60 in relation to mobile phones that are provided for business purposes.
The explanatory notes initially implied that there was to be no attempt to regulate the extent of such private use for the purposes of identifying a taxable benefit in kind. Paragraph 1 of the notes states, fairly clearly:
“This clause replaces the exemption for employer provided mobile telephones in section 319 Income Tax (Earnings and Pensions) Act 2003. It provides that no tax will be due when employers make only one mobile telephone available for private use and removes the availability to family or household tax-free.”
Paragraph 16 of the notes then says:
“The clause re-focuses the relief provided by the exemption, keeping administrative burdens for employers to a minimum where a mobile telephone is provided for business use and private use is also made.”
Furthermore, when one looks at the clause, one sees that new section 319(1) to be inserted in the Income Tax (Earnings and Pensions) Act 2003 says:
“No liability to income tax arises by virtue of section 62 (general definition of earnings) or Chapter 10 of Part 3 (taxable benefits: residual liability to charge) in respect of the provision of one mobile telephone for an employee without any transfer of property in it.”
So far, so good. However, the associated regulatory impact assessment, which was signed by the Paymaster General on 24 April—a fortnight or so after the changes made by clause 60 came into effect—observes that there are now some 50 million mobile phones in use in the United Kingdom. That is a very large number. The RIA does not attempt to break it down into phones provided primarily for business purposes and those that are for personal purposes, but at paragraph 41 it states:
“Employers will still be able to benefit from the deregulatory objectives behind the mobile phone exemption when only one mobile telephone is made available for private use or where a mobile phone is provided for business purposes and there is insignificant private use.”
However, paragraph 23 of the RIA, entitled “Implementation and Delivery Issues,” states more explicitly:
“Where additional mobile phones are made available for private use or where private use of a business mobile phone is significant it will be liable to a tax charge and Class 1A National Insurance in the same way as any other benefit in kind.”
So a literal reading of the RIA implies that there could be a benefit in kind in certain circumstances of provision of an individual mobile phone. If that were the case, employers might be expected to define for taxation purposes the amount of personal use of that mobile phone, even if they had provided only that one mobile phone to their employee. There might be a considerable compliance burden for companies that sought legitimately to remain on the right side of the line. The regulatory impact assessment acknowledges the potential compliance burden at paragraph 54:
“Compliance costs would arise from employers having to report to HMRC the benefits in kind that would be subject to tax and Class 1A NICs under these proposals, the potential need for records to be kept and the implementation of extra coding notices for employees.”
The length of that process might be considerable. For example, if a mobile phone were provided primarily for business use, employees and employers might have to spend hours trawling through mobile phone bills to identify incidental private use and establish whether it was significant. That decision would in itself be subjective, and it might lead to unnecessary disputes between employers and employees, and then, indeed, employers and HM Revenue and Customs.
If, as is often the case in this day and age, the employer paid a fixed monthly amount and call charges were free up to a certain limit, how would “significant” be determined? How should the employee quantify the additional cost to reimburse his or her employer in order to avoid a tax charge? Put another way, assuming that the employee does not or cannot identify the cost of private calls, how should the employer compute the taxable amount in order to remain on the right side of the line?
The Institute of Chartered Accountants in England and Wales considered the issue, and it made the following point about this clause:
“If significant private use of mobile telephones is to be taxable once again, we suggest that there should be a flat rate charge, as was the case before it was abolished from 6 April 1999. This proposal will avoid the need for complex benefit calculations resulting from the availability of a wide variety of payment plans.”
For clarification, will the Paymaster General confirm exactly how the new regime is intended to operate? Specifically, will there be a tax charge for a benefit in kind even on one employer-provided mobile phone if the private use of such a phone is deemed significant? Can we expect new guidelines to define insignificant as opposed to significant personal use? We will be given guidelines in relation to home computers, for instance, and paragraph 73 of the regulatory impact assessment implies that guidelines will apply to both.
If we are going to receive guidelines relating to mobile phones, when are they likely to be made available, given that the measure is already supposed to be in force? Who will be involved in drawing up such guidelines, and what consultation, if any, will take place? There appears to be a dichotomy, so will the Paymaster General clarify the issue for the Committee before we allow the clause to stand part of the Bill?
There is an associated point that requires clarification. It concerns BlackBerrys. They are becoming increasingly common in business—and in this place, too. I thought that in making this point, I had best declare a personal interest, if only for safety’s sake. In a post-Budget note on employer-provided mobile telephones, Deloitte and Touche called for clarification of the status of BlackBerrys, as did KPMG. In addition, in a recent tax alert note on the subject, Ernst and Young pointed out the following:
“No guidance has been given from HM Revenue and Customs to employers about how to determine whether a device’s primary purpose is a mobile phone or whether the mobile phone capability should be considered a secondary feature.”
Subsection (4) of proposed new section 319 defines a mobile telephone as “telephone apparatus”, which means,
“wireless telegraphy apparatus designed or adapted for the primary purpose of transmitting and receiving spoken messages and used in connection with a public electronic communications service.”
The key phrase is “primary purpose”. BlackBerrys usually also encompass a mobile telephone capability. However, arguably, they are not designed primarily for that purpose. Therefore, they appear to be in a grey area as they can also be used for transmitting messages such as e-mail and for obtaining information from the internet. The more modern BlackBerrys allow us to surf the world wide web.

Brooks Newmark: I must confess to having an interest. Although I do not own a BlackBerry, I own a Palm Treo, which has the same impact as a BlackBerry. My hon. Friend makes an excellent point about non-verbal communication. What may be helpful is the fact that all my bills, and I believe all of his, when they are telephonic are itemised. Therefore, any tax inspector of the Revenue can see clearly what is for business and what is for personal use. Perhaps we should be considering that as well, because those devices are for both written and verbal communication.

Mark Francois: I am grateful to my hon. Friend for that intervention, which serves to amplify my point. BlackBerrys have a multi-functionality. The question for tax purposes is, which functionality will be taxed in that instance? Will the Paymaster General confirm whether the clause will define BlackBerrys as computers rather than mobile phones? If so, it would presumably be possible to have one of each without incurring an additional tax charge as a benefit in kind. Following the associated changes to clause 61, that is assuming that any personal use of the BlackBerry, if it were a computer, is deemed not to be significant.
To clear up the ambiguity, can the Paymaster General clarify exactly how clause 60 is intended to operate in practice? Are there any circumstances in which there could still be a tax benefit in kind for a single employer-provided mobile phone? If so, what are they? Can the right hon. Lady say how BlackBerrys are to be categorised for the purposes of the Bill? Are they excluded from clause 60? If so, they will presumably be dealt with under clause 61 instead. It would be helpful if that matter were clarified, too.

Jeremy Wright: I wish to ask the Paymaster General to clarify one matter. I am sure that she will easily be able to answer my question. Under the old system, multiple mobile phones could be provided by the employer without incurring tax liability. If replacement multiple phones are provided now by an employer, will they come under the old regime or will they be caught by the new regime?

Dawn Primarolo: I am in some difficulty in answering the questions that I have been asked because most of them have nothing to do with clause 60. I shall deal first with that clause. I shall then take your guidance, Mr. O’Hara, on the other points.
Clause 60 replaces the tax exemption that prior to6 April enabled an employer to make available a mobile phone for private use. Business use is separate. It is in a different part of the tax Acts and is not affected by the clause. The mobile phone is for private use of the employee and, as it turns out, members of the employee’s family and household. The clause will give exemption to one mobile phone per employee for private use. There is no need for significant private use, business use and so on. The mobile phone is for private use and always was.
The clause limits the tax exemption so that only one mobile phone can be made available to each employee tax free, but it excludes the employee’s family and household. The clause also makes it easier for employers to provide that mobile phone, as prior to 6 April, a tax charge arose on the provision of a non-cash voucher or credit token to make mobile phones available for private use. They were often used by smaller employers who found it easier to give employees credit tokens to go to a mobile phone shop and buy the relevant phone. The clause has nothing to do with requirements in respect of business and business use, which are quite different.
The hon. Member for Rayleigh (Mr. Francois) asked one other relevant question, about BlackBerrys and personal digital assistants. Last year, sustained lobbying from the home computer initiative providers and accountants persuaded the HMRC that the functions of the new generation of PDAs and BlackBerrys made it more appropriate to include them in the exemption under computer equipment. Therefore, they are not covered by the clause.
The hon. Gentleman raised the matter of a commitment to upgrading mobile phones every 18 months or where there is an interaction with the Consumer Credit Acts and arrangements should have been made on transfer at the time. If an employer and an employee have entered into a salary sacrifice arrangement that entitles the employee to the private use of a mobile phone—I am talking about private use only—and extends for more than 18 months, the agreement is covered by the consumer credit legislation. Guidance has already been given and if employers found themselves in difficulty, the HMRC would take that into consideration and so would the Office of Fair Trading.
There is always discussion about which side of 6 April the arrangement was entered into. The employer will have to show the HMRC that, prior to 6 April 2006, it was in the process of setting up a scheme that involved making mobile phones available to its employees for private use, and the arrangement would then roll forward; it is quite a well used measure. My advice is that in each case if there is a renewal or if arrangements have been entered into but have not quite been completed, they will be covered as long as the employer can demonstrate that to the HMRC.
The questions about significant private use and business use are not relevant to the clause, but I can answer them briefly if you think it would be helpful, Mr. O’Hara. I can tell the hon. Gentleman that in respect of business mobile phones, where an employer makes more than one mobile phone available—for example, if an employee is travelling and goes into different world tariff zones, it is easier to have more than mobile phone—there is a rule, which has been in force since before 1999, that where there was significant private use, or where the private use was insignificant but the phone was given for business purposes, the private use would not be counted and would not be taxed. As a result of changes to clause 61, there have been requests for a restatement in guidance of what was operational before.
Discussions are taking place between the HMRC and a number of different organisations such as the CBI, the Institute of Chartered Accountants in England and Wales and the Chartered Institute of Taxation. That will lead to published guidance so that there is no doubt about the provision of business phones for private use. The provision of a private phone, tax free, simply for private use was supposed to help employers with the divide between business and private use. This provision is about a mobile phone given to an employee for private use tax free and the clause simply restricts it to one phone per employee instead of the entire family. That is entirely appropriate.

Mark Francois: I am grateful to the Paymaster General for that clarification. There appears to have been some confusion, including among some professional accounting firms, about what the Government were trying to do. The whole purpose of going through the Bill clause by clause is to clarify those matters. I am glad that we have had an opportunity to do that this morning.
I do not want to transgress the border between clauses 60 and 61, but as the Paymaster General referred to the guidelines on the definition of clause 61, which will affect the definition of significant personal use of a business mobile phone—I understand the distinction that she made—could I with your indulgence, Mr. O’Hara, ask her to give us some idea of when she believes those discussions will be complete and when those guidelines will be made available? All members of the Committee would be interested in an approximate timing if she can provide that before we move on to the next clause.

Dawn Primarolo: The guidance will be produced as soon as it is possible. First, there is the consultation. Then the draft guidance will be issued to ensure that it covers all the points made and then it will be released. I hope that those who have made comments will have time to look at the guidance before it is issued. There is always a difficult balance to strike here. If people want to comment on the draft they will have to do so speedily because it is intended that the guidance will be ready by the end of July so that it runs in sync with the Bill and its final stages. I hope that hon. Members will appreciate that if we get a last-minute comment, we will need to look at it very carefully.

Question put and agreed to.

Clause 60 ordered to stand part of the Bill.

Clause 62 ordered to stand part of the Bill.

Clause 63

Power to exempt use of vouchers or tokens to obtain exempt benefits

Question proposed, That the clause stand part ofthe Bill.

Rob Marris: I apologise for not welcoming you to the Chair when I spoke earlier, Mr. O’Hara.
Will my right hon. Friend explain a technical drafting matter? We have had debates on mobile phones and, under clause 62, we did not have the debate on eye test vouchers. Why are those matters in primary legislation whereas, in clause 63, vouchers for benefits in kind are to be covered by Treasury regulations? In one case, we are using primary legislation and, in the other, we are broadening the net by requiring regulations under proposed new subsection 96A of the Income Tax (Earnings and Pensions) Act 2003, as set out in clause 63. What was the guiding principle on the matter?

Dawn Primarolo: The principle was to give us the flexibility to ensure that employment-related benefits that would otherwise be exempt from tax will remain so. A series of benefits are recognised as being employment related, which I am sure that no hon. Member would dispute. When we examined the issue of eye tests and corrective glasses for VDU users, it became clear that it was more sensible to have a regulation-making power to enable their provision. That will give us the opportunity to respond far more quickly to issues on benefits generally agreed to be work related.

Question put and agreed to.

Clause 63 ordered to stand part of the Bill.

Clause 64

Payments to or in respect of victims of National-Socialist persecution

Question proposed, That the clause stand part ofthe Bill.

Mark Francois: I rise to voice briefly our approval of the clause. In doing so, I declare for completeness an interest as a member of the Conservative Friends of Israel.
The clause exempts from tax payments by UK and foreign banks and building societies to holocaust victims and to their heirs for dormant accounts. The issue is sensitive and I do not think that it needs to be rehearsed at length here. It seems that the consultations on it have been successful, and we welcome the clause.

Celia Barlow: May I say to my right hon. Friend that the clause is very welcome in Hove and Portslade where there is a large Jewish population, many of whom moved here in the 1930s and 1940s or are the children of the people who did so. Many local families fled central Europe, and some of them still remember the horrors.
It is reassuring that the clause was drafted after negotiations with the Association of Jewish Refugees. I realise that the provision already existed as an extra-statutory concession, but enshrining it in law will give victims of Nazi persecution and their heirs the security of knowing that their family money can be retrieved without loss. That is why I support the clause wholeheartedly.

Brooks Newmark: I join my hon. Friend the Member for Rayleigh in welcoming the clause. We do not often congratulate the Paymaster General on her written ministerial statements, but it was heartening to see the intention that she expressed on 19 July last year carried into effect in the Bill.
The numbers involved are small, both in terms of the assets involved and the people who stand to receive them. The Times estimates that since 1998 claimants in the UK have shared nearly £7.5 million from the Claims Resolution Tribunal, which handles claims on deposits in dormant Swiss accounts. The average award has been approximately £74,000. The Guardian is, unfortunately, a little more parsimonious, stating that the Government estimate that those affected in the UK are owed an average of £31,000 and that around 1,000 people will benefit from the clause. The Exchequer cost is also minimal if we accept the Government’s estimate of between £5 million and £10 million.
The principle of the clause is important. Payments under Restore UK to those who are eligible should be indistinguishable from compensation under comparable international schemes such as the Claims Resolution Tribunal. That has not been the case under the existing extra-statutory concession, which in applying only to the domestic scheme has introduced an unwanted distortion into the taxation of compensation payments.
David Rothenberg, treasurer and vice-chairman of the Association of Jewish Refugees, has responded positively to the proposals and the thorough consultation that preceded them. He said:
“We are delighted that the Government has responded positively to our request to introduce this important extension to Holocaust victims and their families of the concessions which applied to compensation from British banks so that the families of Holocaust victims will receive the full benefit from their compensation awards.”
I also welcome the fact that the tax exemption will be given a statutory footing rather than being couched as an extra-statutory concession. It is important that the tax exemption should carry the weight of parliamentary approval rather than bearing the stigma of being perceived as a Revenue fiddle. HMRC describes extra-statutory concessions as necessary
“when strict application of the law would create a disadvantage, or the effect would not be the one intended.”
We would argue the toss whether a simple and equitable tax system should need such concessions to unintended consequences, but there is a consensus that the exemption of compensation payments from taxation is morally right. That being so, I think that we would all agree that a clause in the Finance Bill dedicated to that purpose is preferable to the Revenue backhander that has persisted for the past six years.
It is good to see the Government taking a clear lead on the issue, and I congratulate them. Elsewhere in Europe, those who suffered from national socialist persecution still face an uphill battle to receive the compensation to which they are justly entitled. For example, the Austrian general settlement fund, a£210 million compensation fund created in 2001, is still experiencing problems administering claims. As of last November, not a single claim had been paid out. For once, the Government are in a position to lead by example. Let us hope that other countries catch on.

Dawn Primarolo: I am sure that any Member of this House occupying my role in Government would take the clear view that the restoration of accounts to their original owners or heirs stems from a very dark episode in global history. As all Committee members who have spoken acknowledge, it was considered only right and proper to make provision in the clause for the exemption.
I am grateful for hon. Members’ comments. Rarely is a clause in any Finance Bill so welcomed. The words “morally right” are not often attached to considerations of taxation, but they could apply anywhere. They might apply to other points, but they definitely apply to the clause’s objectives. I commend it to the Committee.

Question put and agreed to.

Clause 64 ordered to stand part of the Bill.

Clause 65

London Organising Committee

Question proposed, That the clause stand part ofthe Bill.

John Healey: Clauses 65 to 68 deal with the status of activities relating to the Olympics. As part of London’s bid for the 2012 Olympic Games and Paralympics, the Government gave an undertaking to introduce the necessary legislation to exempt the London Organising Committee of the Olympic Games from corporation tax. Clauses 67 and 68 would do the same for the International Olympic Committee and for non-UK resident competitors and support staff. That is a recent innovation by the IOC, and all bid cities were required to give such tax undertakings.
Clause 65 and the supplementary provisions in its sister clause 66 will provide the exemptions required for the London organising committee as well as powers to enable that exemption, where appropriate, to be extended or restricted as the committee’s plans and arrangements for delivering the Olympics in 2012 become clear.
That is an essential part of a major event, not just for London, but the country, and to which I think that we are all looking forward. The exemptions are important also so that the committee can deliver the best ever Olympics, and do so in London.

Theresa Villiers: I welcome you, Mr. O’Hara, to the Chair. I shall speak briefly to clause 65, and not trouble the Committee by referring to the clauses linked to it. I shall take this opportunity also to put on the record my congratulations to the London bid team for its remarkable achievement in bidding successfully for the 2012 games. Given, as we have heard, that the provisions in the clauses were a requirement for the bid to have been made, there is no question but that the Government should honour the undertakings made in it.
Will the Financial Secretary tell us whether the clauses are expected to cost a significant amount? One would not necessarily expect the London organising committee or the IOC to raise significant revenue, but it would be useful to hear any information that he might have on that.
Will the Minister comment also on the points raised by the Institute of Chartered Accountants about whether the model for the exemption could be useful for charities as well? A number of complications with charities in general might make the model inapplicable, but I thought that it was a constructive idea from the institute, and I would welcome his thoughts on the matter.
I realise that it is not strictly related to the clause, but may I urge the Treasury to keep a watchful eye on the overall cost of the Olympics? I have raised that point with the Financial Secretary on the Floor of the House; it is of particular concern to my constituents in Chipping Barnet, who are London council tax payers who will pick up the bill for cost overruns, along with the lottery.
The budget for the London organising committee has increased already from £1.46 billion, envisaged last year when the London Olympics Bill went through the House, to around £2 billion, as confirmed by the Minister for Sport in Westminster Hall last week. He indicated that the increase was due to inflation, presumably over the period until the games in 2012. However, that increase would put inflation at 33 per cent. over that 6-year period.
Furthermore, the heightened security needed following events on 7 July must surely have an impact on the overall cost of the games and could presumably drive it up further. I believe that the funding package on security is about £220 million, which was set before the 7 July attacks. The Government have said plainly that they will not meet the cost of overruns and that those must be shared by the lottery and London council tax payers. However, the Minister must be aware that if the games go badly over budget, there will be pressure on the Government to step in. For the sake of London council tax payers and to guard against future demands on the Exchequer, I urge the Government to do all that they can to ensure that the highest standards of procurement are applied to Olympic projects so as to avoid the cost overruns that have dogged many previous games.
If Olympic construction projects are late, we cannot just shift events to Cardiff, as we can the FA cup. I hope that we can learn lessons from Wembley and public procurement disasters such as the Scottish Parliament. I am told that the residents of Montreal are still paying for the games that it held over 30 years ago. Sydney’s budget was £1 billion, but its games ended up costing £2.8 billion, I believe. The Athens Olympics overran massively, with costs spiralling from £1 billion to £5 billion, much of which was due to security considerations, which of course will be more significant in London. I appeal to the Ministers here, as representatives of the Treasury and guardians of the public purse, to ensure that that sort of overrun does not happen in 2012.

Celia Barlow: I welcome my right hon. Friend’s assertion that the Olympics will have a major effect on the whole country. However, I seek clarification of paragraph 13 of the explanatory note to the clause, which states that
“The International Olympic Committee included a requirement in the bid process for the 2012 Olympic Games and Paralympic Games that tax in the host country should not have a significant impact on the Games. As a result of the successful London bid the Government is committed to providing certain tax exemptions, including: LOCOG would be exempt from corporation tax; Withholding tax would not be levied on royalties, and other annual payments made to LOCOG.”
With regard to the regulations for LOCOG, competitors and staff, the receipt of tax relief gives the organisers a responsibility to ensure that these are not just London Olympics, but games for the whole of the United Kingdom.
The Olympic games will be held not only in London but in other parts of the country, as will training camps—the city of Brighton and Hove, of which my constituency is part, is hoping to play host to some teams. We need to ensure that the games are embraced by all the people of the United Kingdom, so these clauses must not be thought of as enabling the Government to provide subsidies for the capital from those who live outside London.
Will my hon. Friend clarify that the tax relief that is rightly to be given to those concerned with the Olympics, and which was part of the London bid, will apply also to providers situated outside London, such as sports venues in my area?

John Healey: My hon. Friend the Member for Hove (Ms Barlow) makes some important points about the role of the Olympics and their potential benefit not just for London but for the whole country. The body is, of course, the London organising committee but, as she rightly says, the games are for the whole UK and they must—and I hope will—be embraced by the whole UK. I wish Brighton and Hove all the best in its bid to host some of the teams that will be competing in the Olympics and Paralympics. Rotherham in South Yorkshire is hoping to do the same—[Interruption.]—and Bristol, too, the Paymaster General informs me. Clearly, there is a lot of interest across the UK in the prospect of the Olympics. The associated activities will reach well beyond the Greater London area, and the organising committee is well aware of that.
On the comments of the hon. Member for Chipping Barnet (Mrs. Villiers), it is difficult to estimate the tax cost in terms of potential revenue forgone. Secondly, the potential yield has not been factored in to the forecasts because if we had not won the bid for the games, there would be no potential tax yield from Olympic-associated activities. Without the exemptions that we are considering, the bid would not have been successful; they were a requirement of the bid application. On the more general costs, the hon. Lady is right. I can assure her that the Treasury will keep a close eye both on the general costs that concern her and on the standards of procurement throughout the run-up to 2012. I have no doubt that the Opposition will help with the scrutiny of the costs and the standards of procurement, as will the National Audit Office and Parliament as a whole.
There are two points about provision for charities. First, LOCOG is not a charity, so it does not benefit from the wide range of tax exemptions available to charities. Secondly, we need to appreciate the unique nature of the Olympic event. That is why we are putting in place unique tax arrangements. It is a once-in-a-lifetime opportunity for a country such as ours to host the games. To that extent, our provisions for the Olympics cannot be generalised to other events, nor are they appropriate for charities generally. I hope that on that basis, the Committee will allow the clause to stand part of the Bill.

Question put and agreed to.

Clause 65 ordered to stand part of the Bill.

Clause 66 and 67 ordered to stand part of the Bill.

Clause 68

Competitors and staff

Question proposed, That the clause stand part ofthe Bill.

Colin Breed: In the explanatory notes on the background to the clause, paragraph 9 states that
“athletes not resident in the UK will not pay income tax on any income arising from their performance at the Games”.
Does that include sponsorship, advertising, media appearances—in fact, all the income that is sometimes somewhat more than that arising from their performance in the games? Sometimes income is more to do with their performance in television adverts and such like.

John Healey: I can broadly confirm the supposition that the hon. Member for South-East Cornwall (Mr. Breed) makes. The current tax system for non-UK resident performers includes income earned in the UK from a range of activities. In the case of a sports star, for example, it may include the winnings in a tournament and media earnings from associated appearances. The provision is designed for the specific purpose of making a special time-limited exemption on such earnings for individual competitors, performers and support staff directly related to the delivery of the Olympics. That is the basis of the proposal, and I stress its time-limited nature.

Colin Breed: Will the Financial Secretary explain the time limit? Is it the three weeks in which the Olympic games take place, or is it a longer period, including that prior to the games when performers are training in this country?

John Healey: No, it will be a longer period than that. The IOC suggested in the host-city contract that we consider a period of 120 days leading up to the opening ceremony, and an additional 60 days after the closing ceremony. We will work through the detail. The clause contains the power to make such requirements in regulation, which is obviously more appropriate than making them in the Bill. Nevertheless, that is the period we are considering: several weeks around the Olympic games and the Paralympic games proper.

Helen Goodman: I understand what the Financial Secretary says about what is going on, but he has not explained why we are providing that massive tax exemption.

John Healey: Perhaps my hon. Friend the Member for Bishop Auckland (Helen Goodman) missed it, but when we started talking about this group of clauses at the outset, I explained that as an innovation, the IOC required of any bid city its preparedness to make tax arrangements to ensure that the successful city’s delivery of the Olympics was not affected by tax. Therefore, clauses 65 to 67 include a range of organisations—not only the London Organising Committee but the International Olympic Committee—and clause 68 covers the competitors and support staff.
The short answer is that the IOC wanted and required the provision as part of the bid. We gave an undertaking to create it as part of the successful London bid, and clause 68 will honour that undertaking.

Question put and agreed to.

Clause 68 ordered to stand part of the Bill.

Clause 69

Restriction on a company’s allowable losses

Helen Goodman: I beg to move amendment No. 103, in page 54, line 10 [Vol I], at end insert—
‘(2D) Arrangements where the tax advantage arises due to the creation or utilisation of an allowable loss shall not be treated as arrangements for the purposes of Part VII of the Finance Act 2004.
(2E) Where an allowable loss accrues to a company in circumstances that are not disqualifying circumstances, then for the purposes of the Tax Acts it should be assumed that the Promoter and the company did not wish that the element of the arrangements that secured a tax advantage not to be disclosed to any other promoter or Her Majesty's Revenue and Customs.”'.

Edward O'Hara: With this it will be convenient to discuss amendment No. 104, in page 54, line 4 [Vol I], after ‘enforceable)', insert
‘but arrangements shall not include any election undersection 24, 161 or 171A and shall not apply to either the whole or part of the loss to the extent that the allowable loss corresponds to an equivalent economic loss suffered by the company'.

Helen Goodman: We turn from the breathless excitement of the Olympics to the somewhat more arid territory of anti-avoidance clauses. [Interruption.] I am certain that they will not fail to engage the attention of the hon. Member for Wolverhampton, South-West. Judging from the noises coming from the back, I think that his party hopes that they will engage his attention more favourably than the clauses on the Olympics.
Clause 69 is a brief but important clause. It is essentially a mini general anti-avoidance clause relating particularly to disclosure, and it takes us deep into tax planning and what advisers should and should not disclose to HMRC. It will establish an anti-avoidance rule disallowing any capital losses to companies arising from arrangements whose main purpose is a tax advantage. It is an extension of previous disclosure rules introduced, as the Paymaster General will tell us in due course, in the Finance Act 2004.
The question is one of balance and fairness. Obviously, we deplore the exploitation of different tax rates in order to abuse them. In the Government’s favour, it is perhaps worth knowing that Deloitte welcomes the revised clauses:
“The amendments set out in the revised legislation and HMRC guidance notes provide welcome clarification in certain areas and also amend some of the unintended consequences of the proposed new legislation.”
However—there is always a “however”—one of the difficulties is that the Government have doubled the size of UK tax legislation in eight years. By doing so, they have created more opportunities for avoidance and more gaps that must be plugged, creating in turn yet more opportunities for avoidance. It is worth testing with amendments the complexity and uncertainty of the system, and whether the changes will increase or reduce that complexity and uncertainty.
Amendments Nos. 103 and 104 are essentially probing amendments, although amendment No. 105, which relates to the imposition of a possiblepre-clearance regime, is rather less probing. I shall be interested to hear what the Paymaster General has to say about that. We want to hear her response before deciding whether to press the amendments to a vote.
Amendment No. 103 would introduce two further additions to section 8(2) of the Taxation of Chargeable Gains Act 1992, which the clause will add to and amend. The first part of the amendment seeks to remove capital loss planning from the proposed disclosure rules. The argument runs that if an allowable loss can be used only where obtaining a tax advantage is not the main purpose for creating that tax loss, it is unreasonable for the Government to impose a disclosure regime to prevent the utilisation of such losses, which by their nature must be real economic losses and not paper losses. The amendment would remove capital loss planning from the scope of the disclosure rules by excluding it from the relevant definitions in the statute that introduced those rules.
The second part of the amendment deliberately echoes the wording of the statutory instrument that, from 1 July 2006, will put into effect key changes to the disclosure rules. HMRC’s old regime required that a scheme should be disclosed if it could warrant a premium fee, or if it were confidential in the sense that the tax adviser would not want the idea to be known to the wider tax community. The new regime goes wider: it requires confidentiality in the sense that the adviser would not want the scheme to be known to HMRC.
The statutory instrument requires the promoter—the lawyer, accountant or bank—to disclose the scheme if
“(i) it might reasonably be expected that a promoter would wish the way in which an element of those arrangements secures a tax advantage not to be disclosed to any other promoter; and
(ii) the promoter does not wish to disclose to Her Majesty’s Revenue and Customs the way in which that element secures that advantage”.
The second part of the amendment is intended to bring about a debate on the contents of the statutory instrument, and in particular on what is meant by the word “wish”, and how that wish will be perceived. We also want to consider the reason for not dealing with amendments to the disclosure rules by way of primary legislation, and the reason why Ministers are seeking to impose limits on discussions that are themselves legal and which may have arisen because of deficient drafting of tax legislation—although I am sure that that latter point was covered in the debate on the 2004 Bill.
Amendment No. 104 seeks to clarify the proposed disclosure rules and to enshrine in law an important comment contained in the explanatory notes—the comment that clause 69 will not apply to economic losses. Thankfully, amendment No. 105 is a bit less dry—

Edward O'Hara: Order. We have not yet reached that amendment.

Dawn Primarolo: I was moving on with the hon. Member for Wycombe. As he rightly identified, the clauses deal with three specific anti-avoidance measure. They have their origin in disclosures made under the regime that was introduced in 2004. At the time, Mr. Flight—the then hon. Member for Arundel and South Downs—spoke about disclosures on behalf of the Opposition and said:
“At the heart of the issue, as far as we see it, is the fact that reporting of the tax avoidance schemes being marketed is in essence a no-brainer. People know when they are marketing them, and when such a scheme is being marketed to them.”
He continued:
“The objective is that the Revenue should at least be much more quickly aware of what is being marketed. That is sensible.”—[Official Report, Standing Committee A, 22 June 2004; c. 701-704.]
That fits specifically with the wider point made by the hon. Member for Wycombe about complexity and avoidance. Unfortunately, whatever Governments do—much of the legislation that is being exploited is legislation that was in place under the previous Government—the same old things are tried: creating a loss or getting a capital allowance or a deduction or converting one form of income into another to have it taxed under a different regime. This goes to the heart of how our tax system works. While I am happy to engage with the hon. Gentleman in that debate, it is somewhat fruitless, at least on these clauses.
As I said, these measures result from information specifically provided under the disclosure regime and are specifically targeted to deal with that. Indeed, the comments made at the time of the announcement and the observations on the draft clauses from a whole range of organisations and accountancy firms, such as KPMG, Ernst and Young and Deloitte and Touche to name but three, clearly acknowledged that this is precisely how the clauses are operating.
Clause 69 denies tax relief for capital losses where their existence or amount has been contrived, that is, where the losses that arise do not reflect commercial reality. The clause prevents relief for capital losses where there is either no underlying economic loss, or there has been no commercial disposal of an asset by a company or its group and the main purpose, or one of the main purposes, of the arrangements was to secure a tax advantage.
These measures were first published in draft in the pre-Budget report and they are all effective from that date. In the pre-Budget report, HMRC also published draft guidance on the new measures, with a statement setting out why they are necessary and the principles that underpin them. That approach, which clearly sets out what the measures are seeking to achieve, has been well received by the accountancy and legal professions and their clients.
There are two identifiable classes of transaction that this legislation will affect. The first is transactions structured so that the tax outcome does not reflect economic reality. These are cases where a large capital loss is created for tax purposes but where there is no, or only a very much smaller, commercial loss. The second class of transaction targeted is one where there is a contrived sale or other disposal of an asset and that sale gives rise to a real commercial loss but there has been no effective, or real commercial disposal of the asset. There is therefore no change in the economic ownership of the asset because either the company, or the group, still retains ownership. Since there has been no real “disposal”, the clause will act to disallow the capital loss.
Amendment No. 103 is aimed at excluding from the scope of the disclosure regime any arrangements that obtain an allowable capital loss. That is a very wide exclusion indeed, covering all arrangements that involve capital losses. The main purpose of the disclosure regime is to ensure that HMRC receives early information about potential tax avoidance schemes so as to inform current and future anti-avoidance legislation policy. The disclosure regime, as the then hon. Member for Arundel and South Downs pointed out, provides the information to ensure that if steps are necessary, they are specific and targeted to move away from what had been the practice of successive Governments of a more blanket approach to some anti-avoidance legislation, without having the clarity of the disclosure regime to pinpoint specifically the transactions that are required to be in order. The disclosure regime helps to identify schemes that may well meet the letter of the law, but which use it in a way that was not intended and, at times, in an abusive way. They do so by requiring disclosure of schemes falling within certain descriptions contained in the regulations. Those descriptions are carefully targeted at the schemes that have a high risk of being avoidance.
It seems absurd therefore, as the amendment proposes, to exclude from the scope of the disclosure regime a scheme that complies with that particular tax rule, but which could have other avoidance aspects that have nothing to do with capital losses. It is precisely those schemes that meet the letter of the law—but in the way that was never intended—that the disclosure regime is designed to detect. That was the debate when we approached the clauses in Committee in 2004. If the logic applying to the amendment were to be applied across the board, the disclosure regime would be rendered worthless. There would be no point in it and the objective of the effective operation of disclosure regimes that the Opposition agreed that the Government should seek would be undermined. It is no surprise to the hon. Gentleman that I believe that amendment No. 103 strikes at the purpose of what we are trying to achieve under the regulations. I am not attracted to it. I do not know whether the amendment is probing, but I shall take it as such at the moment.
Amendment No. 104 would do two things. First, it would prevent the clause from being applied when arrangements include certain claims or elections made under other provisions of the Taxation of Chargeable Gains Act 1992. It also undermines the purpose of the clause by allowing a capital loss even though there has been no real commercial disposal of an asset. In the majority of cases, the clause will have no impact on companies making claims or elections under other sections of the Act, for example, when a company claims a loss because an asset has become of negligible value. I go back to the point made by the then hon. Member for Arundel and South Downs in 2004, which is that people know when they are marketing avoidance schemes and others know when such a scheme is being marketed at them. HMRC’s additional published guidance specifically addresses the points of which companies need to be aware. It states that the making of such an election will not in itself be regarded as an arrangement to which the clause applies.
However, giving carte blanche to all arrangements that use particular claims or elections, as the amendment would do, undermines the effectiveness of the clause. It is possible that the claims or elections could be part of larger arrangements that have been contrived to produce a loss. I touched on that point when I covered amendment No. 103. The legislation must be capable of deterring such behaviour because, again during our discussions on the Finance Act 2004, it was clear from contributions made by all members of the Committee that it was the presence of the disclosure regime to deter people, in the first place, from engaging in those activities that was of particular importance.
The second effect of amendment No. 104 would be worse, in that it would completely undermine the principles that underpin the clause by giving relief for losses on assets that have not actually changed economic ownership. In extreme cases, it would mean that companies could create large capital losses, even though an asset might only temporarily have fallen in value and there had been no change in economic ownership of the asset.
As if the other bit of damage was not bad enough, the amendment would also have wider implications for the corporate capital gains system. Companies’ capital gains and losses are taxed or relieved on a realisation basis. If we were to give relief for losses when there is no real economic disposal, we would be allowing a mismatch in the treatment of gains and losses, as losses would effectively be relieved as they accrued whereas gains would continue to be taxed on realisation.
Taken as a whole, amendment No. 104 seriously undermines clause 69 to the extent that any additional revenue from preventing avoidance schemes currently in use would, in all likelihood, be lost. The estimate is something like £260 million for the tax years 2006-07 to 2008-09 with a continuing £150 million a year thereafter.
Amendment No. 103 would exclude several potential avoidance schemes from the disclosure regime and amendment No. 104 would seriously undermine clause 69. I hope, therefore, that the hon. Gentleman has probed the intention of the Government enough and will want to reflect on what has been said before he decides whether to pursue the matter further.

Helen Goodman: When tabling these amendments and those to clauses 70 and 71, I thought that reference might be made to the former hon. Member for Arundel and South Downs, Mr. Howard Flight. Although I have not gone back through the 2004 debates to read every remark he made or to follow entirely the flow of his thought, I suspected that he might have dealt with such clauses.
The Paymaster General’s reply was a little reliant on extreme cases when she referred to amendment No. 104. She acknowledged that some innocent arrangements might be caught by the provision. However, in the light of the long consideration given to the proposals during the consultation process that she referred to and my not wanting to explain to her where we would plug a£260 million gap in finances, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Helen Goodman: I beg to move amendment No. 105, in page 54, line 10 [Vol I], at end insert—
‘(2D) Subsection (2)(b) above shall not apply where, before the end of the accounting period in which the allowance loss accrues, the Board have on the application of the company notified the company that the Board are satisfied that the disposal or deemed disposal does not accrue in disqualifying circumstances.
(2E) Subsection (2D) shall be subject to the same procedures contained within section 138(2) to (5).”'.

Edward O'Hara: With this it will be convenient to discuss amendment No. 101, in clause 71, page 62,line 47 [Vol I], at end insert—
‘(5A) Subsection (2)(b) above shall not apply where, before the end of the accounting period in which the allowable loss accrues, the Board have on the application of the company notified the company that the Board are satisfied that the disposal or deemed disposal does not accrue in disqualifying circumstances.
(5B) Subsection (2)(b) shall be subject to the same procedures as those contained in section 138(2) to (5).'.

Helen Goodman: As the Paymaster General and I both anticipated, we come to amendment No.105. It is more straightforward than the previous amendments in that it would introduce a pre-clearance regime to the proposed rules on disclosure. Given that HMRC already has a relationship with companies by way of the disclosure arrangement, there is a case for introducing a pre-clearance regime that sets the dialogue on a more formal basis. Capital gains tax frequently arises on major business transactions, a classic example of which would be the sale of a property or business, so large amounts of money may be at stake. Capital gains by their nature tend to relate to substantial decisions by companies, hence the risk that an adverse tax change could deter businesses from making commercial decisions.
A pre-clearance regime would mean that HMRC would make policy clearances publicly available in order to provide greater certainty to taxpayers. Such regimes are widely used abroad, for example in Australia and New Zealand. My recollection is that in countries where they are not used—for example, the Republic of Ireland—the tax regime is a good deal simpler. I suspect that the Paymaster General will argue that it will be difficult to staff the regime, or that the arrangement might be administratively inconvenient, but since in this and other clauses the Government are seeking in effect to enter into further discussions about tax affairs with businesses, there seems no obvious reason why a tax clearance regime should not form part of those discussions.
Furthermore, there is a genuine debate to be had about whether the Government should, on the one hand, spend more time tinkering with the tax system in the light of the greater complexity caused by the expansion of tax legislation since 1997, or, on the other, simply opt for a pre-clearance regime.

Jeremy Wright: I rise briefly to support amendment No. 105, tabled by my hon. Friend the Member for Wycombe. The difficulty is that companies that have to make delicate commercial decisions about how to manage their losses want clarity about what they are and are not permitted to do while staying legitimately within the tax regime. For example, they may have to decide whether to move losses from one business period to another or make other arrangements that will benefit them commercially. I hope that the Paymaster General will surprise my hon. Friend and me and say that the amendment is a good idea, but I fear she will not. In that case, I would ask her to think again, because there is a huge advantage to be gained in companies being able to contact HMRC for clarification of what they are permitted to do. Certainly, that would be desirable.
As my hon. Friend said, although there may be some additional administrative inconvenience for HMRC in providing clarification, there would be greater benefits for the company concerned and for the economy generally. I therefore ask the Minister to consider the amendment very carefully. It is a good idea that will assist companies in knowing exactly what they are permitted to do in an important area that is growing increasingly complex and difficult to manage.

Brooks Newmark: The added benefits for HMRC are time and money, which are limited assets. Greater clarity upfront on these issues would benefit the constituent involved and save HMRC time and money in chasing up matters later.

Jeremy Wright: My hon. Friend is right; prevention is better than cure. The consequences of the amendment should be that HMRC will be able, perhaps very simply, to tell a company whether an arrangement would be legitimate for tax purposes. I go back to what the Paymaster General said earlier about remarks that were made in the 2004 Finance Bill debate: if it is clear what is and is not a permissible arrangement, it will not take long for HMRC to answer questions. If, by having their questions answered, companies can stay within the limits of the tax regime, in the long run, as my hon. Friend says, we will save ourselves and them a great deal of time and money.

Dawn Primarolo: Before I comment on the amendments, let me address the issue of statutory clearance. That concerns the additional burdens on business and a great deal more that the hon. Gentlemen, conveniently, did not touch on. The clauses deal with tax avoidance. They have been disclosed as regimes under disclosure, and therefore legislated for, and will apply only where one of the main purposes of a transaction or arrangement is tax avoidance. They will not apply to the vast majority of companies or to wholly commercial transactions. The principle behind the measure is that companies should be able to claim and use capital losses only where there is both a genuine economic loss and a genuine commercial disposal. That is the absolute bedrock. The hon. Gentlemen have spoken about complexity, but business is complex. Assuming that they do not propose taking capital losses out of the tax system completely, they are over-egging their comments about the tax system and the way in which legislation is phrased.
Although the amendments affect two separate clauses, clauses 69 and 71, they are grouped together because they deal with the same principle. They seek to introduce a statutory clearance procedure for both clauses, and I consider that to be unnecessary. The majority of companies do not need to use the clearance procedure, but could be forced to do so. Once that is in place all sorts of other things come into consideration, such as whether they have been properly advised, and indemnities for accountants and lawyers. That does not apply to most companies because the scheme is specifically about the misuse of losses, and in any case they will know whether they are using it. To say that they will not is to ignore commercial practice, as has been acknowledge in this Committee on a number of occasions and in debates on different Finance Acts about the nature of avoidance.
The disqualifying circumstances with which clause 69 is concerned are those in which companies have entered into arrangements whose main purpose is to enable them to secure a tax advantage. In short, that is tax avoidance, and that is what the measures are aimed at. Companies will know whether they are doing it. There is no question that they need statutory clearance. The effect on all other companies will be the reverse of what is being advocated. It will not give speedy resolution, but will drive them to feel that they should seek statutory clearance—presumably before the transaction takes place and therefore putting pressure on it—whereas they will not need it in the first place because they are not engaged in the activities covered by the clause.

Jeremy Wright: Surely the Paymaster General cannot have it both ways. If she is right—I do not think that she is—that this is a straightforward area, it will always be obvious to companies what is tax avoidance and what is not. Surely if there is a clearance procedure, and they ask whether an arrangement is tax avoidance or not, they will get a very simple, straightforward and quick answer from HMRC, which will not cost much time or money. So what is the problem with the procedure?

Dawn Primarolo: First, we are not talking about commercial transactions. The clauses deal with very narrow and specific avoidance mechanisms. That is all that we are talking about. We have put that clearly in legislation and guidance notes. The idea that those who design such schemes, knowing what they are designed to achieve, should seek clearance before they start marketing them, is simply unattractive—to put it mildly.

Brooks Newmark: Will the Paymaster General give way?

Dawn Primarolo: No, I will not. I am going to answer the question, and then the hon. Gentleman can come back. It is a complex area, and I am not able to get one set of answers on the record before the next set comes forward. The hon. Gentleman can make his points later.
Clause 69, as I said, is aimed at those companies that specifically use that type of scheme; those schemes are caught by the clause. They do not happen by accident or incident; they are the result of highly contrived circumstances when transactions are undertaken. It is very simple. If there is no clearance, companies should not engage in such schemes. The schemes are carried out in a particular way, primarily to achieve a desired tax effect rather than general commercial purposes, and companies will know that. For that reason,clause 69 does not need a safety blanket of a statutory, pre-clearance procedure wrapped around it. It is quite clear what it is aiming at.
The schemes at which clause 71 is aimed are just as artificial as those targeted by clause 69. They seek to turn an income stream into a capital gain, or to contrive a linked income deduction, effectively turning a capital loss into an income one. In each case, capital losses are used to shelter tax liabilities on the contrived capital gain. The relief for capital losses is given against income profits only in very limited circumstances, when Parliament intends that to happen. Schemes have been devised to circumvent that intention and to obtain relief at will, and clause 71 stops that. However, clause 71 is targeted at more complex schemes, so there may be more uncertainty about whether the legislation applies. HMRC has instigated an informal clearance scheme for the clause, which businesses may use if they wish. That has the advantage of providing help to people who want it, without adding any unnecessary layer of bureaucracy to those who do not. It provides the practical certainty that businesses want. HMRC will be bound by its decision, with regard to clause 71, provided that businesses disclose all the relevant facts when the application is sought. Furthermore, the rules that the clause introduces will apply to companies only if the notice to that effect is issued by the board of HMRC. That will further comfort compliant companies.
Both the amendments make reference to a clearance procedure used for share exchanges, but they would not adapt the legislation to make it relevant to the clauses, so they would not actually work. They would also provide for statutory clearances to be applied for before the transaction takes place. They would be requested and, presumably, granted on the basis of planned or hypothetical transactions. That cannot possibly make sense. The amendments contain no requirement that an applicant is contemplating carrying out the proposed transaction. There is a danger that the clearance procedure will be used by tax professionals to tweak and perfect schemes that they then implement and market to their clients. I am sure that members of the Committee can understand why I am not attracted to that idea.
If companies are unsure about the application of clauses 69 and 71, they need only look at the comprehensive guidance issued by HMRC in December 2005 and at the statement of principles that underpins the measures. Furthermore, there is the option of making an application to HMRC under the code of practice 10 procedure if a company is unsure of the interpretation of the wording of the law. There is also the informal clearance procedure in clause 71, as I have pointed out. The Government believe that those measures will provide the clarity and certainty needed. The capital loss package was the subject of consultation with business and its advisers, and there was no suggestion that the application of either clause was unclear.
If there were a formal clearance procedure, directors of compliant companies might feel compelled to use it. Lawyers and accountants could find that their professional indemnity insurance would be invalid if they failed to use the statutory clearance procedure. They might then decide to require applications for clearance in all cases in which they are advising on transactions that might result in a capital loss, such as the liquidation of a failed subsidiary or a capitalisation scheme such as the sale or leaseback of property, even when there is clearly no tax avoidance purpose and despite clear HMRC guidance. The only effect of the amendments would be potentially thousands of pointless clearance applications, costing businesses additional fees for their advisers, and delays in commercial life due to the need for applications.
The amendments would add none of the certainty that business seeks. The clear targeting of clause 69 and the guidance, code and informal clearance procedure in clause 71 provide that certainty without creating an unwieldy statutory clearance system that would not benefit anybody except the advisers who would be paid fees.

Helen Goodman: The Paymaster General dealt convincingly with the previous group of amendments, but I am not convinced that she has dealt quite so convincingly with this group. I take her point about the additional burden that a pre-clearance regime might place on business. However, although I hear what she said about Howard Flight’s contribution in 2004, I do not entirely accept that there is a stark, clear line between anti-avoidance arrangements and other arrangements.
Obviously, if someone is framing an avoidance scheme they know that they are doing so. However, the Paymaster General said that this is a complex area. She then looked ahead at clause 71 and said, if I heard her correctly, that there would be extra arrangements to help businesses drawing up schemes to know whether they are in breach of the law. That sounds more complex than what the Paymaster General set out.
We cannot simply impose a pre-clearance regime on the Treasury. However, passing the amendment would be a rather stark course of action to take, although we will want to return to the matter in due course. As we go through clauses 70 and 71, we might find that where businesses stand with Her Majesty’s Revenue and Customs and its tax arrangements is far less clear than the Paymaster General made out. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part ofthe Bill.

Brooks Newmark: I have learned in the past year to study not only the Bill itself, but the explanatory notes, which are great at giving clarity. I shall read paragraph 2 of the summary of clause 69 in the explanatory notes because it has a bearing on a point that I shall make in a moment. As the Paymaster General said, it is very clear:
“The clause is based upon the principle that relief for corporate capital losses should only be available where a group or company has suffered a genuine commercial loss and has made a real commercial disposal of an asset. The rule will only apply where arrangements produce a loss that is greater than the real underlying economic loss or where arrangements entail the asset upon which a loss is claimed to have arisen remaining within the economic ownership of the company or the group.”
That is a fair point, which looks clear to me.
I remain concerned, however, when august institutions such as the Chartered Institute of Taxation write not only to me but, I believe, the Paymaster General. I am sure that she has seen the institute’s briefing. On clause 69, it said:
“In our comments on the draft legislation we said that what is now clause 69 will result in the taxation of arithmetical differences that do not correspond to actual gains. We gave the following example.
Suppose that a company has an asset with a base cost of 100, but with a market value of 40. It sells the asset for 40 and subsequently re-acquires it for 40. Some time later it sells the asset to an unconnected third party for 90. The loss on the first sale is not allowable, but the original base cost is not reinstated. Therefore a chargeable gain of 50 arises on the second sale, even though a real loss of 10 has been sustained.”

Rob Marris: Will the hon. Gentleman explain why the loss on the first sale is not allowable?

Brooks Newmark: Will the hon. Gentleman clarify his question? It was rather short and abrupt.

Rob Marris: The hon. Gentleman read out an example given by the CIT:
“The loss on the first sale is not allowable”.
I am simply asking the hon. Gentleman, who prays in aid of that example, to explain to the Committee why the loss on the first sale is not allowable.

Brooks Newmark: I confess that I am not a tax expert—[Interruption.]—but I certainly understand the mathematics to which the institute referred. If the CIT—a far more august institution than many to which we might belong—has expressed a concern about the arithmetic behind the expected impact of losses and gains in respect of this clause, I am merely sharing that concern. I should like to ask the Paymaster General, who has received the same document, why neither the Institute nor I should be concerned about the issue.

David Gauke: I am afraid that I cannot throw any light on why the loss in the first transaction will not count, but if the example given by the CIT is incorrect because of the assumption that the hon. Member for Wolverhampton, South-West mentioned, perhaps the Paymaster General should confirm whether the assumption is correct.

Brooks Newmark: I thank my hon. Friend for that intervention, which reflects the point that I made a couple of minutes ago. I want to touch on the second concern raised by the CIT. It says:
“We also mentioned that draft s184a disallows a loss arising on a degrouping deemed disposal (eg where another person acquires more than 25 per cent. of the chargeable company), but does not exempt any gain arising on a similar deemed disposal. We cannot discern the rationale for this and would appreciate an explanation. However, it seems to us to be another case ofthe principles applying only where it suits the Government. The above comments apply to the provisions as included in the Finance Bill, which are the same as the draft provisions.”
Finally it says:
“It is disappointing that there has been no change in the draft legislation.”
I am sure that the Paymaster General has seen the document. I respect the CIT, so I shall be interested to hear her comments on the two concerns that it has raised in respect of clause 69.

Dawn Primarolo: It will be more fruitful for me to write to the CIT to explain why its concerns are not relevant than it will be for me to answer the hon. Member for Braintree (Mr. Newmark), who has read out what it says but is not sure how it works. I would pray in aid a number of responses that we received as a result of publishing the draft clauses in December, including one from Ernst and Young, which says:
“The whole or main purpose test has been used extensively in recent legislation”.
That is to say that people are familiar with it. The author continues:
“I agree with the guidance notes. Purely commercial transactions should not be caught by this test.”
That is the case; they are not. The CIT put forward the example that we have heard. Let me paraphrase my reply. First, this is an anti-avoidance provision. It will catch only transactions undertaken with tax avoidance either as their main purpose or as one of several purposes. That is a well used concept in our tax system. The institute makes a general argument, whereas we are talking about anti-avoidance, which already has a narrow “target”. The principle behind the provision is that losses will be allowed only when they are matched by a commercial disposal. That has been made very clear, and has been acknowledged by the accountancy press and professional bodies with regard to this clause and the arrangements in it.
If a group still tries to avoid tax by crystallising a loss without matching it with a commercial disposal, it will not be surprised if it loses access to that loss. Should it go on to pay tax on the real commercial disposal after attempting to avoid tax, it will have to accept that consequence. That is the response to the CIT, however it is dressed up as company A doing this, company B doing that and some money exiting en route.
Clause 69 is specifically targeted; it is anti-avoidance and its purpose and intent are acknowledged to be clear. I am sure that the CIT will be grateful to receive a slightly longer and more detailed response from me, but those are the basic principles.

Question put and agreed to.

Clause 69 ordered to stand part of the Bill.

Clause 70

Restrictions on companies buying losses or gains

Helen Goodman: I beg to move amendment No. 106, in page 57, line 10 [Vol I], at end insert—
‘184DA Sections 8, 184A and 184B: meaning of “main purpose”
For the purposes of sections 8, 184A and 184B “main purpose” means a purpose without which the underlying commercial transaction would not have occurred.'.

Edward O'Hara: With this it will be convenient to discuss the following amendments: No. 107, in page 60, line 4 [Vol I], at end insert—
‘(4A) At the end of section 176, add—
“(10) This section shall not apply to companies for disposals accruing after 5th December 2005.”'.
No. 108, in page 60, line 6 [Vol I], leave out from ‘212)' to end of line 13 and add
‘subsections (8H) and (8I) shall cease to have effect.'.
No. 109, in page 60 [Vol I], leave out lines 25 to 28.
No. 110, in page 60, line 29 [Vol I], leave out from beginning to end of line 2 on page 61.

Helen Goodman: The clause bundles together a series of anti-avoidance proposals in order to amend the Taxation and Chargeable Gains Act 1992. Before I go through the amendments in detail, I want to return to the point about the clarity of the legislation. In the debate on the amendments to clause 69, I quoted Deloitte’s general welcome for the provision. However, it is worth noting that the firm Norton Rose recognises greater ambiguity and difficulty for business in these arrangements than the Paymaster General allows. It said:
“The guidance notes state that the provisions do not apply where there is a genuine commercial transaction that gives rise to a real commercial loss as a result of a real commercial disposal. However, debate is likely to continue as to the meaning of these phrases. HMRC have rejected calls for a clearance procedure and have also rejected requests for mitigation of this rule in circumstances where companies seek to recognise capital losses on assets before a real commercial disposal takes place."
The context of amendment No. 106 is that proposed new section 184A in clause 70 will place restrictions on companies buying other companies with losses. New section 184B will place restrictions on companies buying other companies with gains. The crucial section, which relates to the previous two, is new section 184D which defines "tax advantage" in relation to the other sections.
Amendment No. 106 is a probing amendment, which would insert a new section 184DA in order to place in law a definition of the main purpose of a company when that main purpose is to avoid paying tax. There is currently no interpretation of main purpose within UK tax statute. The definition in the amendment is a case-law definition given as obiter dicta. In case any members of the Committee do not know what that is, I looked it up, although not through the medium ofMrs. Gauke, and found that obiter dicta are the remarks of a judge which are not necessary to reaching a decision, but are made as comments, illustrations or thoughts. The hon. Member for Wolverhampton, South-West knew that already, but other Committee members did not necessarily know. Some of them might have.
Amendment No. 107 deals with sections 176 and 177 of the 1992 Act, which disallow capital losses where there is tax planning to generate an unreasonable loss. Following the changes to section 8 of the 1992 Act approved in clause 69, there is arguably no reason for section 177 to remain in existence for corporate bodies. The amendment seeks to establish whether the Treasury intends to duplicate a piece of legislation unnecessarily.
Amendment No. 108 would remove the whole of clause 70(5)(a) and (b). The argument supporting it relates again to the unnecessary duplication of legislation and runs as follows. The measures relate to life assurance businesses. Specific rules prevent life assurance companies from deferring capital gains on their holdings of equities by holding them via a captive collective investment vehicle such as a unit trust. The rules work by deeming the assurance company to have sold all such unit trusts at the end of each accounting period. The net amount of capital gains or allowable losses arising from the total deemed disposals is spread for tax purposes over seven accounting periods, including the current one. Typically, a net loss can be carried back against spread gains arising in the previous six periods.
Subsections (8A) to (8I) of section 213 of the 1992 Act were introduced to deal with an anomaly. Capital gains and losses are particular to the company in which they arise. Therefore, if life assurance business was transferred to a new company, provisions allowed net spread amounts not yet taxed to transfer with the business. However, if the stock market then plummeted, the transferee could not carry back the losses against gains already taxed to the transferor, even though the gains and losses arose to the same policyholders.
Subsections (8A) to (8I) of section 213 were introduced to allow a two-year carry-back by election where the transferor and transferee were in the same group. Unfortunately, in the opinion of some, subsections (8H) and (8I) were included so that the election could be reduced by the effect of the pre-entry gain rules. It was argued that that was unnecessary, as the rules required that the transferee did not carry on long-term business before the transfer. Hence, gains and losses must relate to the same policyholders.
Clause 70 seeks to introduce a new restriction following the abolition of the pre-entry gain rules. General anti-avoidance rules now apply to the creation of capital losses, and specific anti-avoidance rules apply to the purchase and sale of companies for their capital losses or gains. Also, rules exist to prevent shareholders from using their losses against policyholder gains and vice versa. It is argued that given those measures, there is no need for subsections (8A) to (8I) to remain in force.
Amendments Nos. 109 and 110 propose to delete everything between line 25 of page 60 to the end of line 1 of page 61. It is argued that the measures that would be deleted are retrospective, and that UK tax law should not usually be retrospective. I look forward to the Paymaster General’s response on those points.

Dawn Primarolo: As with the measures in clause 69 that we discussed, this clause will apply only to companies that enter into arrangements with one of the main purposes being to obtain a tax advantage. It will provide protection against the practice of buying and selling companies not for their inherent business worth or for access to their assets but for access to their tax potential. It also introduces new rules to tackle tax avoidance and repeals the original gain buying rules.
There has been increasing evidence in recent years of tax avoidance involving capital losses and capital gain buying, as a number of groups of companies have accumulated large amounts of capital losses—more than they need to set against their gains. Some of those groups have been seeking ways to create a value for those losses. The clause will prevent companies from benefiting from the losses of other companies or groups when entering into an arrangement one of the main purposes of which is to obtain a tax advantage. If the conditions set out are met, the use of losses will be restricted so that the company or group is stopped from setting off another group’s losses against its own gains.
Amendment No. 106 defines in fairly narrow terms what arrangements should be regarded as having a “main purpose” of avoiding tax. There are many examples of the main purpose test in UK tax avoidance legislation, and by necessity the matter can be determined only on a case-by-case basis with reference to the facts and circumstances of the taxpayer concerned. The test is well used, and HMRC has issued detailed guidance, which it continues to update, to provide as much certainty as possible to business. The system is working. The main purpose test is included not only in clauses 69 to 71 but in a lot of other places. The phrase is well understood by business and its advisers, and guidance and support is given by HMRC. 
The definition in the amendment is much narrower than the natural meaning of “main purpose” or “one of the main purposes”. The amendment would mean that no transaction with a commercial purpose could form part of a tax avoidance arrangement, however minor or irrelevant it was to that arrangement. Unless the tax advantage was the only purpose of the transaction, the rules could therefore not take effect. Planners would simply ensure that some connection was made, however tiny. The amendment would severely weaken the clause and mean that companies could easily undermine the application of the rules.
On amendment No. 107, I cannot quite see the link between clause 70 and section 176 of the 1992 Act. The latter deals with the calculation of capital gains and losses on the sale of company shares when sales or transfers of assets under value have reduced the value of the company: that is called a depreciatory transaction. The hon. Gentleman wants to repeal section 176, which covers some common ground with, for example, clause 69. It can be used to combat avoidance involving the artificial creation of losses. Its remit, however, is wider than just anti-avoidance.

It being One o’clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o’clock.